Maybe eBay Won't Have To Overpay For Skype By Quite As Much

from the he-shoots-he-misses dept

Thu, Apr 20th 2006 11:31am — Carlo Longino

eBay's overpayment for Skype is set up into two stages -- the initial $2.6 billion, then another $1.5 billion that's based on Skype meeting certain performance metrics. Today's Om Malik's noting that while Skype's first-quarter revenues were about 40% higher than the previous quarter, its per-day revenue average needs to be 50 percent higher to hit its internal goal of $200 million for the year. Guess that means they better start pushing those ringtones harder, given the lack of a coherent strategy. So while eBay may end up not having to pay the full $4 billion, it wouldn't be for the best reason -- because Skype's not performing up to expectations. Update: The plot thickens a bit -- that 42% quarterly revenue growth figure eBay put in its earnings release is misleading. As Om pointed out back in January, the fourth-quarter figures only covered the 78 days of the quarter after eBay's buyout of Skype closed. So the first quarter, which had the full three months, should see a bump by virtue of being 13 percent longer. Using the daily revenue average is one way to get a fairer comparison of the two quarters. In the fourth quarter, they were $318,000 per day, and if you extend that out over 90 days, you end up with about $29 million. In the first quarter, the average was about $391,111 per day or $35.2 million. These figures show a much less impressive 23 percent revenue growth -- nearly half of what eBay states.

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Term, 20 Apr 2006 @ 12:35pm

a harder time
And with Yahoo and others doing the VoIP thing Skype may find it harder to make revenues stick year after year.

I use skype and its great, but when others already have yahoo for instance its gonna be harder to claim new market. 3 million users is impressive so far.
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Anonymous Coward, 20 Apr 2006 @ 1:23pm

Skype will be found at the bottom of the "chasm" in 14-18 months.
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ekc, 20 Apr 2006 @ 1:47pm

face-off!
I wonder if anybody can square what this site (which I greatly enjoy) says with Henry Blodgett's recent post .
I have little to no ability to understand financial statements, but your two views seem to be at opposite ends of the spectrum. Right now I am leaning more towards believing his, but I wondered what you guys have to say about his views concerning eBay's possible folly.

And yes, we all know Blodgett's history, but I've found his articles on Slate.com and his blog to be pretty informative.
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ekc, 20 Apr 2006 @ 1:48pm

the title was a joke, by the way. I have no desire to see a pissing match. I would just like to hear a logical, reasonable discussion that helps me come to my own conclusion.
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Henry Blodget, 20 Apr 2006 @ 2:24pm

Om's Skype Analysis
With all due respect to Om, I don't understand the conclusion. Om calculates that Skype will have to increase daily revenue by 50% to hit its internal target of $200 million in revenue this year. Revenue grew 42% sequentially LAST QUARTER, though--which means the company should exceed the "50% more per day" hurdle early in Q3. Using a reasonable extrapolation of the growth rate (i.e., deceleration to 30% sequential in each of Q3 and Q4), I get to about $225 million for 2006, comfortably ahead of the $200 target. So I don't understand why Om concludes that Skype needs to skedaddle to merely meet its internal goals.
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Carlo, 20 Apr 2006 @ 3:42pm

Re: Om's Skype Analysis
Om math seems to make sense -- that to hit that $200 million figure, they'd have to earn an average of about $600,000 per day for the rest of the year, which is 50 percent or so more than their first-quarter daily average. I guess it makes as much sense as extrapolating the growth of the rest of the year from one quarter, though.
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Carlo, 20 Apr 2006 @ 4:27pm

Re: Om's Skype Analysis
Actually, it looks even worse for Skype -- check out the update to the post above.
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adachan, 20 Apr 2006 @ 5:16pm

this is silly
Skype just works. And its cheap. It makes money and alot of it! Dont listen to these financial people. Just becasue something doesnt meet its fiscal predictions doesnt mean its dying.

We have to quit letting business people decide what we should buy. Look how bad movies suck. Ditto for music. Video games are so saturated with remakes these days its all crap. Im not so sure they do know what they are doing....
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Henry Blodget, 20 Apr 2006 @ 9:07pm

Om's Math
Carlo, Thanks for the return post and update. I'm afraid I still don't understand why it makes sense to simply annualize a Q1 growth rate for a company growing this fast (which seems to be Om's implication: They aren't at a $200 million run-rate yet, so therefore they aren't going to make it). This said, you and Om correctly point out that Skype's $25 million in revenue for Q4 only included 75 days of the quarter, a point I missed. Extrapolating a growth rate of 25% still gets you to $200 million, but not with the cushion I originally thought.
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